I'm new to REI and trying to develop a "sweet spot" for rental homes price ranges . I am reading that focusing on low income homes/areas = more problems with tenants and turnover, while focusing on pricy areas = smaller pool of would be tenants and more DOM. I would appreciate hearing your experiences or getting any advice on the subject I can get.
Everyone has their own system. That being said it REALLY depends on the area. We buy class A properties that are less than 8 years old. We buy them for 90k-150k 160-240k in different areas. So it really depends on your area.
what @Elizabeth Colegrove said. The market dictates the actual numbers the market will provide. You, on the other hand, must dictate the numbers from your end based on what your financial goals dictate. When the two meet, you invest in that market...and the range you are looking for is established for you.
However, with that in mind, here is what will dictate those numbers when you are coming from both sides...and reverse engineer your answer from both ends to the middle.
1 - Rents in the market areas
2 - T/I in those areas
3 - Cost to buy in those areas
4 - Cost to finance your buy (refi)
5 - Cash flow left over after all expenses/month factored in
6 - Min cash flow required based on your goals
Example here in Michigan (doing this deal right now):
1100 sq ft 3/1.5 ranch w/bsmt & 2 car detached garage in Redford, MI
$47,000 My cost to buy/rehab/etc...in cash
$64,000 ARV (will be higher in spring/summer too)
$48,000 75% ARV for refinancing in 6 months
$ 1,000 Cash out at refi (on top of cash back of $47k)
$ 950 Rent/month
$ 350 All expenses/month inc PM
$ 600 CF/month before REFI
$ 243 REFI PI/month
$ 336 CF/Month with REFI in place, and NO CASH left in deal (actually, I get back $1,000 more than I started with)
My criteria was:
1 - All cash back by the time I refi, and
2 - At least $300/month in CF with the refi (and PM) in place
The Market dictated:
1 - $1000 Rent
2 - $47,000 max. Cost
3 - $64,000 min. ARV
....and, we met in the middle.
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